Operations Management for Business

IKEA

Name: Huu Dat Nguyen Student ID: 110438666

BUSS 2065

Introduction
Operations planning is concerned with taking actions, such as ensuring resources
are in place, in anticipation of future events. The nature of the planning task is
determined by how accurately future events can be predicted (Greasley, 2013,p.
218).The price of metal, glass, wood and plastic have spiraled up, as have shipping
costs. Inflation has squeezed consumers' wallets (Mann, M, 2023).That was the case
of IKEA when they encountered a material crisis. When material prices increase,
what is the effective solution for businesses?. A company that targets a broad
market aims to attract various classes of customers. Maintaining low costs while
ensuring quality is crucial to the brand's success."Our budget is the customer's
wallet, and their wallets are smaller than ever," said Susanne Waidzunas (Mann, M
2023).IKEA's strategy focuses on keeping product prices stable in a very volatile
market. To achieve this, IKEA must be flexible in its product design strategies to
create the best prices. These changes have made me realize how complex and
innovative a business can be. Theories that might seem impractical are cleverly
applied in IKEA's processes.

Capacity
When learning about the types of allocation in the production process, I noticed
through Figure 7.8 that IKEA applies both batch and line production during product
changes. Jobbing, however, is not used because IKEA is a large-volume
manufacturing company. This makes jobbing completely inappropriate for IKEA's
model. A typical example of line production at IKEA is the redesign of the Flintan
office swivel chair. They optimized the design to better utilize space in shipping
containers, thereby reducing shipping costs. “IKEA can now squeeze 6,900 Flintans
into one shipping container, up from 2,750”, “Hold the chair's price at $119 in the
U.S. Without the design tweaks, the price would have risen significantly” the
company said. Changing the design has helped prevent IKEA products from
increasing in price due to market influence. Capacity planning involves evaluating
the capacity requirements and determining the best way to meet these using a
feasible and low-cost capacity-planning approach. (Greasley, 2013,p. 241).Next is
the batch production line, which involves producing one product in medium and
controlled quantities. IKEA opted to use the outsourcing method in the figure 11.3
when it identified a factory in China with excess capacity.”Production of the new
version started last year in China, where the local manufacturer had spare capacity
and could implement the new production system sooner.”(Mann, M, 2023).Utilizing
external production sources helped IKEA to introduce new products more rapidly,
especially during periods of factory shortages across Europe.

Inventory
.” substitute less expensive recycled aluminum for zinc”, “develop paper foil for use
on its furniture around 2004, and has since steadily made the material less
expensive and more reliable, gradually deploying it on other furniture lines”,”the
replacement of metal nails with user-friendly plastic fasteners—but the switch from
veneer to foil generated the cost savings”.Decoupling Inventory IKEA has employed
a strategy of material substitution to reduce production costs. Substituting recycled
aluminum for zinc and developing cost-effective paper foil have lowered costs and
increased material reliability, contributing to reduced production expenses.
Decoupling inventory is demonstrated by the reduction in costs and increased
production efficiency, regardless of dependence on a single material
source.”Production of the new version started last year in China, where the local
manufacturer had spare capacity and could implement the new production system
sooner”(Mann, M, 2023) .Cycle Inventory IKEA has made changes in its production
processes to reduce setup time and optimize manufacturing efficiency. Transitioning
from traditional veneer to paper foil reduces setup time and enhances production
efficiency. Cycle inventory is utilized to minimize wait times and increase production
efficiency, as seen in the simultaneous production of multiple items and the
allocation of setup costs across product quantities
Quality of Products:
KEA's commitment to maintaining product quality amidst market challenges is
evident in its strategic responses to material crises. By substituting materials with
cheaper yet reliable alternatives, such as recycled aluminum and paper foil, IKEA
ensures that cost reductions do not compromise product integrity. The transition from
traditional veneer to paper foil not only reduces costs but also enhances production
efficiency, showcasing IKEA's dedication to delivering high-quality products at
affordable prices. Moreover, the optimization of product design, as seen in the
redesign of the Flintan office swivel chair, demonstrates IKEA's focus on improving
functionality and reducing costs without sacrificing quality. Overall, IKEA's emphasis
on product quality remains steadfast despite fluctuations in material prices and
market conditions.

Impact on Supply Chain

IKEA's inventory management changes have significantly influenced its supply chain
dynamics. By adopting strategies such as material substitution and outsourcing,
IKEA enhances its supply chain resilience and agility. Utilizing cheaper alternatives
and optimizing production processes not only reduces costs but also minimizes
supply chain disruptions caused by material shortages or price fluctuations.
Furthermore, the incorporation of external production sources enables IKEA to
introduce new products more rapidly, thereby enhancing its competitive advantage in
the market. These changes reflect IKEA's proactive approach to supply chain
management, ensuring adaptability and responsiveness to dynamic market
conditions.

Conclusion
In conclusion, IKEA's proactive response to material crises and market challenges
underscores its commitment to maintaining product quality and optimizing its supply
chain. Through strategic initiatives such as material substitution, design optimization,
and outsourcing, IKEA effectively balances cost efficiency with product integrity,
ensuring affordability and sustainability in its offerings. By leveraging innovative
approaches to inventory management and capacity planning, IKEA remains resilient
and adaptable in the face of changing market dynamics. Overall, IKEA's continuous
pursuit of excellence in operations planning and supply chain management
reinforces its position as a leader in the furniture industry, setting a benchmark for
quality, affordability, and sustainability.
 References

Mann, Maximilian.(2018) IKEA Redesigns Its Bestsellers, Starting With the

Billy Bookcase; With inflation squeezing consumers and material and shipping

prices up, the company took products back to the drawing board

https://go.openathens.net/redirector/unisa.edu.au?url=https://www.proquest.c

om/news

Greasley, A. (2013). Operations management (3rd ed.). Wiley ; Chichester.

https://ebookcentral.proquest.com/lib/unisa/reader.action?docID=5516552

.
Hill, A., & Hill, T. (2018). Essential operations management. Palgrave.

https://ebookcentral.proquest.com/lib/unisa/reader.action?docID=6235040